Defrauded Students to Receive Only Partial Debt Relief
Some federal student loan borrowers who were defrauded by for-profit colleges will only see part of their debt discharged under a new relief plan unveiled Wednesday by the Department of Education.
Under the Obama administration, those students stood to have their entire debt wiped clean. The announcement confirms Democrats’ and student loan advocates’ fears that students who were duped into expensive, unaccredited programs to earn certificates and degrees that never translated to a meaningful career may not see their entire debt forgiven.
But department officials framed the new process as “improved,” and one that departs from an “all or nothing” approach to a tiered approach.
“We have been working to get this right for students since Day One,” Secretary of Education Betsy DeVos said in a statement. “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly. This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified.”
Notably, for pending claims, no changes will be made to the existing loan-discharge approval criteria. However, the level of reimbursement is now commensurate with borrowers’ current earnings.
For example, students whose current earnings are less than 50 percent of their peers from a comparable postsecondary program will receive full relief. Students whose earnings are at 50 percent or more of their peers from a comparable postsecondary program will receive “proportionally tiered relief to compensate for the difference.” The underlying goal is to ensure that the loan discharge takes into consideration any benefit students did reap from their program.
More than 100,000 claims are currently pending at the Department of Education, a backlog that’s been sitting inactive for months. To date, the Education Department has approved for discharge 12,900 pending claims submitted by students who attended now-shuttered for-profit giant Corinthian Colleges, which collapsed in 2015. About 8,600 pending claims have been denied.
The changes don’t come as a surprise.
In September, DeVos criticized the loan relief program, saying that defrauded students simply had to “raise his or her hands to be entitled to so-called free money.”
She’s also been critical of the Obama-era regulation that governs the debt forgiveness, known as borrower to defense repayment, the rules of which are currently being renegotiated as part of the regulatory reset happening at the Education Department.
“It is the Department’s aim, and this administration’s commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow,” DeVos said in a statement.
Higher education experts jumped on the news.
“This is a bad idea for a host of reasons,” Ben Miller, the senior director for postsecondary education at the Center for American Progress, said on Twitter. “It ignores the question of whether you actually got a job in that field, what your long-term career prospects are, the massive cliff effects, and it’s comparing graduates to some potential dropouts.”
He continued: “The result is this formula is going to deny relief to borrowers literally because they just held any job anywhere. It has nothing to do with earnings close to what they should have gotten.”
“Today’s announcement from the Department of Education is an insult to students everywhere who are waiting for relief,” Yan Cao, fellow at The Century Foundation, said in a statement. “Students who have been defrauded – not just from Corinthian, but from all predatory for-profit schools – deserve a full discharge of their federal student loans, which has been the standard to this point.”